Independent financial advisors are using technology to provide their clients with services that rival major brokerages’ at a fraction of the cost. In 2005, Merrill Lynch spent about $1 billion on a platform for its brokers/financial advisors and it is expected to spend about the same over five years to outsource the workstation technology to Thomson Reuters.

The new mobile-ready office of a financial plannerPhoto by Tom Groenfeldt

Sophia Bera figures she spent $5,000 to set up her new financial advisor business, Gen Y Planning, in Minnesota and will spend another $5,000 the first year in subscriptions and fees. Other independent advisors are finding that technology and services from firms like Morningstar, Vanguard and TD Ameritrade give them tools that rival what the big brokerage houses can offer.

“… the cost of what it takes to operate an advisory firm today compared to 20 years ago has been reduced tremendously, due to technology,” Michael Kitces partner, director of wealth management at Pinnacle Advisory Group, wrote in his highly regarded Nerd’s Eye View blog.

In a guest appearance on his blog, Bera explained how her business got started.

“In April 2013 I quit my job at a start-up and launch my own RIA, Gen Y Planning...Now, I have a dozen clients across the country that are in their 20s and 30s.”

She runs it on a MacBook Pro, an iPhone 5 and a DoxieGo portable scanner with wifi. She uses Skype for meetings with distant clients, Dropbox for shared folders and PreciseFP to send clients a link to a secure questionnaire. She finds existing financial planning to be more suitable for Baby Boomers than Gen Y.

“I did have a friend build me a one-page retirement projection in Excel (I paid him $75). I write my 5-page financial plans in plain English in Pages and then print it to Adobe. I’ve found that nobody wants 50 pages of charts and graphs that they don’t understand.”

She was using WaveApps for accounting but thinking of moving to Quickbooks Online “because the starter package is only $12.95 a month and it would be easier to outsource at a later date. I also allow my clients to pay through PayPal and I can send invoices through PayPal which I love!”

Because she works from a lot of coffee shops, she set up a Virtual Private Network (VPN) with Private Wi-Fi which encrypts her data on open wi-fi networks for $9.95 a month. She bought her domain name from GoDaddy.com for $17.51 for three years and hosts her website on WpEngine, “which is supposed to provide excellent security in addition to being able to deal with large spikes in traffic and costs only $29 a month.”

She selected LessAnnoying CRM because it is, as the name suggests, less annoying. At the time of her blog, she was in free trials with online scheduling and electronic signature tools. She uses Google Apps and Google Vault (now G Suite) for $10 a month. Follow the link for more details on how she builds her business.

Her biggest single expense was hiring a compliance specialist firm, which she said costs $1,800-$3,000 depending on your state and the size of your firm.

She is an example of the point Kitces makes about new technology.

“Tools that make it more efficient to be a solo financial advisor – scheduling software, rebalancing software, tax updates built into powerful planning software rather than proprietary spreadsheets, account aggregation tools that automatically update financial plans, etc. – have all reduced the costs of being a solo financial advisor, in terms of both time and money," he wrote in his blog.

“…while 20 to 30 years ago the ‘best’ technology was at the wirehouse firms that had the resources to develop them, today almost all of the best solutions are provided by independent technology firms, and accessible for the average solo financial advisor (because the independent technology provider can achieve economies of scale, which transfers down to the individual advisor using the software!)”

Lynn Dunston, founder of Dunston Financial Group, a fee-only wealth management and financial planning firm in Denver, said he sees on a weekly basis how tech-heavy the business has become. As the company grows, it will use technology to create standard steps for bringing on new clients so it can assign different steps to individual staff.

The client journey begins with the firm’s website, Dunston said.

“Clients will judge you by your website. We have had multiple clients who say they chose us because of our blog or website; it’s amazing how much time they spend researching.”

“Because financial planning is becoming more and more complex, it is critical that firms with multiple advisors scale their workflows and design one master workflow so we do the same task the same way for every client.”

The firm has just moved to RedTail, a workflow-driven CRM app that is a financial industry standard. For portfolio management, it uses Black Diamond which includes a client portal so customers can check their portfolio and track it against a benchmark. To include assets held away from the firm, such as a 401(k) it uses eMoney Advisor for account aggregation with a client portal so users can see their total holdings in one spot.

“Some firms use it to sell, but since we are fee-only, we focus on what the client has. A new client can input all their accounts and that feeds into the financial plan.” Clients can drop documents like PDFs of accounts and estate planning into Citrix Sharefile, which he described as similar to Dropbox but with more robust security. Dunston can use that to share subfiles with clients’ accountants and attorneys.

“It helps clients get organized,” and places their financial documents in one place. They have the freedom to move the information around, so it works for them, he added. They use the professional advisor tools from Morningstar to research and analyze portfolios. To attract and retain clients, the firm also has a robust social media program and employs a consultant in search engine optimization (SEO).

He finds many clients are intense tech users, and that cuts across all ages.

“People want apps. We have clients who want to know what our tech platform is, can they log in through an app on their phone? They can through Black Diamond or NetXInvestor on the client side and NetX360 on our side as planners which is our custodian’s app.”

For phone conferences, Dunston uses GoToMeeting for calls to clients all over the world. They recently added new software, AdvicePay, which supports a retainer model so clients can pay for advice on a monthly or quarterly basis.

“That’s another change we are seeing, the idea of subscribing to financial planning, paying for services on a piecemeal basis rather than a fixed fee. Our clients pay half up front and half later on but some younger clients may feel comfortable splitting the fees up over a couple of months.”

Nancy Effert, owner of Effert Financial Solutions, Inc. in Barrington, Illinois, said that technology allows an independent advisor to offer services similar to the full service a family office provides. She mostly uses third-party investment firms at 50 to 60 BPS, and she has a network of accountants and attorneys she collaborates with using technology.

“With ShareFile from Citrix, we can share documents with other professionals who don’t have to be in your office.”

Technology is especially helpful in working with younger clients who would rather work with her on screens than come into the office.

She works with TD Ameritrade which offers a portfolio rebalancing tool that gives her greater flexibility than a robot advisor offers, she said, such as splitting a portfolio to 25 percent aggressive growth and 75 percent moderate growth.

“TD is the most progressive firm when it comes to technology.” She has two assistants, one entirely remote and another who comes in a few times a week. She uses RedTail for CRM and RiskAlyze to evaluate clients’ risk appetite.

Celeste Mirassou, a certified financial planner in San Rafael, California, said she is not a big tech user, but she knows what works for her. For CRM, she uses Excel.

She uses Vanguard Advisor which is free and has reports almost identical to Morningstar which costs $200 a month.

“You can put your portfolio or get their models and they will compare portfolios. It’s free and they have good support. I do more retirement planning and it works fine for me.” She uses QuickBooks for accounting and JoinMeNow for sharing screens with clients.

Twitter @tomgroenfeldt

I like the pace of technology, especially in finance where it can move so fast. In 2015 I was named one of the 25 top global finserv influencers. (http://bit.ly/1DsqaeK) In addition to Forbes I write for International Finance Magazine, Banking Technology and Mondo Visione, a...